- In an effort to improve the customer experience and root out deceptive business practices, the Federal Trade Commission proposes sweeping changes to dealership operations across the country. If passed, the way you do business will change forever.
- Rule Changes Apply to Boats, Cars, Motorcycles and RVs
By a 4-1 vote June 23, the FTC issued a notice of proposed rulemaking which if passed, will change the way you interact with your customers forever. The regulation, dubbed the “Motor Vehicle Dealers Trade Regulation Rule” would apply to cars, boats, motorcycles, and RVs, and is primarily aimed at removing deception and other unfair business practices from the motor vehicle market. The FTC put forth this regulation as they have taken more than 50 enforcement actions related to automobiles in the last 10 years and have also received more than 100,000 consumer complaints annually, over the past three years, related to the car buying experience.
Contents of the Rule
At face value the proposed rule increases disclosure requirements and necessitates dealers make known all costs and sale conditions upfront. Furthermore, it will also prohibit dealers from making deceptive advertising claims or misrepresentations about the cost of the vehicle, cost of add-on products and services, and the financing terms. Dealers would also be prohibited from selling add-ons that offer no additional benefit to the consumer, like “nitrogen filled” tires. The rule would also increase recordkeeping requirements and mandate that dealers keep detailed records of their compliance with these new processes for two years.
Prohibited Misrepresentations – Increased Transparency
At the core of the proposed rule is removing deceptive practices from the marketplace primarily with regards to financing, advertising, and add-ons. The FTC is attempting to increase transparency during the buying process and increase competition between dealers. This section would not only bar the dealer from being deceptive toward the customer, but also prohibit dealers from misrepresenting any “material information on or about a consumers application for financing.”
Disclosures – Offering Price and More
The proposed rule also requires dealers to make key disclosures in a clear and conspicuous manner. For example, upon customer inquiry, a dealer must be able to disclose the full cash price for which a dealer will sell or finance the motor vehicle to any consumer, excluding only government charges. These disclosure requirements would also apply to financing information as well, for example, a dealer must inform consumers that a lower monthly payment will increase the total amount the consumer will pay, if true. The rule would also require the dealer to create an “Add-On List” which discloses “on any website, online service or mobile application … a list of all optional add-ons and the price of each add on.”
Add-On — No ‘Junk Fees’
The FTC is also focused on stopping dealers from charging consumers for “junk fees,” and the rule strictly prohibits dealers selling items to the consumer that provide no benefit. Under the rule, dealers would be required to disclose, and offer to close the transaction, for the cash price without optional add-ons — itemizing the Offering Price, any discounts, rebates, or trade in valuation, and required government charges. If the buyer declines to purchase, they must sign the form as proof that the dealer has provided the required Offering Price to consumers before including optional add-ons in a sales transaction.
Recordkeeping –Two-year Requirement
Dealers would be required to create and retain records showing compliance, including advertisements, price lists, customer correspondence, financing documentation, LTV calculations for all sales of GAP coverage and customer complaints.
Next Steps and What to Expect
The Proposed Rule is currently open for public comment until September 12. The MRAA, along with several other trade associations including the RV Dealers Association, have submitted a request to extend the comment deadline by an additional 120 days.
Regardless of if the extension is granted, the MRAA and our state MTA partners will be submitting comments. Furthermore, the MRAA is going to deploy a Boating United action alert and we will encourage all our MRAA members to engage.
If you have any questions pertaining to this proposed rule or would like to provide insights as to how this will impact your business, please contact Chad Tokowicz, Government Relations Manager, at Chad@mraa.com.